Expansion in U.S. Business Investment Affirmed By Jabil’s Sales

A circuit board is inspected during the de-masking process at the Jabil Circuit Inc. facility in St. Petersburg, Florida. Photographer: Jim Stem/Bloomberg

June 22 (Bloomberg) -- Jabil Circuit Inc.’s confirmation of
its sales forecast of about $16.4 billion for the fiscal year
ending Aug. 31 is a signal that U.S. business investment is
maintaining its expansion.

The St. Petersburg, Florida-based company yesterday
reported sales rose 22 percent to $4.2 billion in the quarter
ended May 31, a week after one of its largest customers,
Research in Motion Ltd., missed profit and revenue estimates
because of product delays. Another customer, Cisco Systems Inc.,
the world’s biggest networking equipment manufacturer,
experienced weaker demand in its consumer, set-top box and
government agency areas for the quarter ended April 30, Chief
Executive Officer John Chambers said on a May 11 conference
call.

Combined, RIM and Cisco comprise about 25 percent to 30
percent of Jabil’s sales, according to Sherri Scribner, a
research analyst at Deutsche Bank Securities in New York.
Jabil’s revenue expectations for the entire year suggest that
its markets are still growing, she said.

“This is the first contract manufacturer to provide a
positive comment regarding capital expenditures in the past
couple months,” Scribner said. “While a few of Jabil’s major
customers are weak, the company’s overall business is seeing
good demand.”

Missed Forecasts

Jabil, the third-largest provider of electronic
manufacturing services, offers a “good read” on business
investment because it makes hardware products for automotive,
industrial, medical and information technology companies, said
Scribner, who maintains a “hold” rating on the stock. The
company’s positive projection comes amid signs of a possible
slowdown in IT after optical component makers Finisar Corp. and
Ciena Corp. missed revenue forecasts, citing soft demand from
telecommunications customers.

Demand patterns remain “good” in many of Jabil’s business
segments, as “people are becoming a little bit more optimistic
about late 2011 and prospects in 2012,” Chief Executive Officer
Timothy Main said on a conference call yesterday.

“We’re in the midst of a slow, somewhat choppy economic
recovery that continues to seem sustainable from our vantage
point,” he said.

Capital spending is one of the primary drivers of the U.S.
economy and a reflection of its overall health, according to
Ethan Harris, head of developed-markets economic research at
Bank of America Merrill Lynch in New York. Companies have been
“tight-fisted” in the last few years -- under-spending on
equipment or postponing upgrades -- so positive indicators from
the supply chain could have broader implications, he said.

Five-Year Low

Since reaching a five-year low in the second quarter of
2009, the last quarter the economy was in the recession,
business investment in equipment and software climbed 23 percent
before adjusting for inflation. By comparison, gross domestic
product was up 7 percent over the same period.

“Companies have effectively been adding no new capacity,
even with the recovery in the economy,” Harris said. “There’s
a lot of room for growth even without a boom in the economy.”